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Brinks Home Security Reports Second Quarter 2020 Results

Ascent Capital Group

DALLAS-FORT WORTH, Texas, Aug. 06, 2020 (GLOBE NEWSWIRE) -- Monitronics International, Inc. and its subsidiaries (doing business as Brinks Home Security TM), (“Brinks Home Security” or the “Company”) (OTC: SCTY) today announced results for the three months ended June 30, 2020.

Second Quarter Key Highlights:

  • Net revenue of $120.8 million, as compared to $128.1 million in the prior year period

  • Net loss of $21.7 million, as compared to net loss of $54.2 million in the prior year period

  • Adjusted EBITDA of $64.1 million, as compared to $68.3 million in the prior year period

  • On June 17, 2020, the Company acquired approximately 113,000 residential alarm monitoring contracts from Protect America, Inc., representing approximately $4.6 million in recurring monthly revenue

William Niles, Interim Chief Executive Officer of Brinks Home Security, commented, “We are pleased with our execution in the second quarter as we continued to make progress against our go-forward strategic plan, while continuing to effectively manage the business through the COVID-19 pandemic.  We will remain opportunistic in pursuing additional bulk account acquisitions like our recent purchase of approximately 113,000 accounts from Protect America.”

Customer & Attrition Data

The Company has two principal sales channels including its direct-to-consumer sales channel (the "Direct to Consumer Channel" or “DTC”), which offers both Do-It-Yourself and professional installation security solutions and its exclusive authorized dealer network (the "Dealer Channel"), which provides product and installation services, as well as support to customers.  In addition, from time to time, the Company acquires accounts through negotiated bulk account acquisitions.

Accounts Added

On June 17, 2020, the Company acquired 113,013 residential alarm monitoring contracts from Protect America, Inc. representing approximately $4.6 million in recurring monthly revenue (“RMR”).  Under the terms of the transaction, the Company took ownership of the alarm monitoring contracts at closing through an earnout structure that included a $16.6 million upfront payment. For the first six months, starting on the first full month following the closing date, the Company will pay a $5.00 monthly earnout payment per active account. For the remaining forty-four months, the Company will pay the seller a $25.00 monthly earnout payment per active account.  The Company acquired the accounts lien free at closing and, after month fifty, will have no further earnout obligation to the seller.

Including the Protect America transaction, the Company added 126,781 customers in the second quarter of 2020, as compared to 22,743 accounts in the prior year period. There were no bulk account acquisitions during the second quarter of 2019. The increase in customer accounts from the Protect America transaction was partially offset by a year-over-year decline in accounts generated in the DTC and Dealer Channels.  The decline in DTC was principally due to the Company’s decision to leverage more profitable organic leads while dealer production was impacted by restrictions on door-to-door selling relating to the outbreak of COVID-19. 

Attrition

 

 

Twelve Months Ended June 30,

 

 

2020

 

2019

Beginning balance of accounts

 

885,436

 

 

955,853

 

Accounts acquired

 

192,835

 

 

96,736

 

Accounts cancelled

 

(134,489

)

 

(162,318

)

Cancelled accounts guaranteed by dealer and other adjustments (a)

 

(7,114

)

 

(4,835

)

Ending balance of accounts

 

936,668

 

 

885,436

 

Attrition rate - Core Unit (c)

 

16.0

%

 

17.6

%

Attrition rate - Core RMR (b) (c)

 

18.0

%

 

17.5

%


(a)

Includes cancelled accounts that are contractually guaranteed to be refunded from holdback

(b)

The RMR of cancelled accounts follows the same definition as subscriber unit attrition as noted above. RMR attrition is defined as the RMR of cancelled accounts in a given period, adjusted for the impact of price increases or decreases in that period, divided by the weighted average of RMR for that period.

(c)

Core Unit and RMR attrition rates exclude the impact of the Protect America bulk buy, where the Company is funding the purchase price through an earnout payment structure.

Core Unit attrition was down for the twelve months ended June 30, 2020 as compared to the prior twelve-month period.  The decrease in the Core Unit attrition rate includes the impact of fewer customers, as a percentage of the entire base, reaching the end of their initial contract term, continued efforts around “at-risk” extensions and customer retention and the benefit of improved credit quality in the DTC Channel.

Core RMR attrition increased year over year due to a combination of lower RMR for accounts generated in the Company’s DTC Channel, as a minimal equipment subsidy is offered, lower production in the Dealer Channel, which typically enjoys higher RMR, and rate reductions relating to the Company’s “at-risk” retention program. Further, in light of COVID-19, starting in March 2020, the Company made the decision to defer taking ordinary course rate adjustments to its base. The Company will evaluate its rate strategy going forward as circumstances warrant.

Presentation of Predecessor and Successor Financial Results

Apart from interest and amortization expense, Brinks Home Security’s operating results and key operating performance measures on a consolidated basis were not materially impacted by the reorganization of the Company in August 2019 and its application of fresh start accounting. The Company believes that certain of its consolidated operating results for the three months ended June 30, 2020 are comparable to certain operating results from the comparable prior year period.  Accordingly, the Company believes that discussing the results of operations and cash flows of the Predecessor Company and the Successor Company for the three-month period ended June 30, 2019 and June 30, 2020, respectively, is useful when analyzing certain performance measures.

Three Months Ended June 30, 2020 Financial Summary1

 

Successor Company

 

 

Predecessor Company

 

Three Months Ended
 June 30,

 

 

Three Months Ended
 June 30,

 

2020

 

 

2019

Net revenue

$

120,808

 

 

 

$

128,091

 

Cost of services

27,624

 

 

 

28,536

 

Selling, general and administrative, including stock-based and long-term incentive compensation

32,541

 

 

 

28,163

 

Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets

54,368

 

 

 

49,138

 

Interest expense

20,207

 

 

 

40,536

 

Income tax expense

602

 

 

 

666

 

Net loss

(21,652

)

 

 

(54,202

)

Adjusted EBITDA

64,101

 

 

 

68,276

 

 

 

 

 

 

 

 

The Company reported net revenues of $120.8 million, a decline of 5.7% as compared to the prior year period.  The decrease is primarily attributable to a decline in alarm monitoring revenue of $8.8 million due to a lower average number of subscribers in 2020, partially offset by $2.2 million dollars of incremental revenue from the Protect America bulk, and a year-over-year increase in product, installation, and service revenue of $1.9 million.  Also contributing to the decrease in net revenue is a decline in average RMR per subscriber due to an increased mix of customers generated through the DTC Channel, which typically has lower RMR as a result of lower subsidization of equipment.

RMR acquired during the quarter was $5.3 million, as compared to $1.1 million in the prior year period. RMR acquired during the three-month period related to the Protect America bulk was $4.6 million.

Cost of Services was $27.6 million, a decline of 3.2% year-over-year.  The decrease includes the impact of a lower average number of customers in the period as compared to the prior year and a $1.4 million decline in subscriber acquisition costs in the Company’s DTC Channel.  This was partially offset by the cost to serve the incremental Protect America customers for a portion of the 30-day transition services period.

Selling, General and Administrative costs were $32.5 million, an increase of 15.5% year-over-year.  The increase is primarily attributable to the Company recording a $4.8 million insurance settlement received in the second quarter of 2019. In addition, reduced subscriber acquisition costs in the quarter were offset by post emergence salary expense, consulting fees on integration and implementation of company initiatives and severance expense related to transitioning executive leadership.

Net loss totaled $21.7 million as compared to a net loss of $54.2 million in the prior year period.  The decrease in net loss is primarily attributable to no restructuring and reorganization expense incurred in the current quarter combined with lower interest expense.  These decreases were partially offset by lower revenues and higher SG&A costs, 2G and 3G radio conversion costs and amortization expense.

Adjusted EBITDA was $64.1 million, a decline of 6.1%, driven by reductions in net revenue and increased SG&A expense.

1All variances are year-over-year unless otherwise noted.

Liquidity

As of June 30, 2020, excluding a minimum liquidity requirement of $25 million under the terms of the Company’s credit agreements, the Company had total short-term liquidity of $126.4 million to fund working capital and continuing operations.  This includes $45.5 million of cash and cash equivalents and $80.9 million of remaining borrowing capacity under the $145.0 million Revolving Credit Facility.

The Company’s existing long-term debt at June 30, 2020 includes an aggregate principal balance of $1.0 billion under its Takeback Loan Facility, Term Loan Facility and the Revolving Credit Facility.

Conference Call

Brinks Home Security will host a conference call on Thursday, August 6, 2020 at 5:00 pm ET.  To access the call please dial (833) 712-2984 from the United States, or (602) 563-8728 from outside the U.S. The conference call I.D. number is 6466857. Participants should dial in 5 to 10 minutes before the scheduled time.

A replay of the call can be accessed through August 13, 2020 by dialing (800) 585-8367 from the U.S., or (404) 537-3406 from outside the U.S. The conference call I.D. number is 6466857.

This call will also be available as a live webcast, which can be accessed at Brinks Home Security’s Investor Relations Website at https://ir.brinkshome.com/.

About Brinks Home Security

Brinks Home Security (OTC: SCTY) is one of the largest home security and alarm monitoring companies in North America.  Headquartered in the Dallas-Fort Worth area, Brinks Home Security secures approximately 937,000 residential and commercial customers through highly responsive, simple security solutions backed by expertly trained professionals. The company has one of the nation’s largest networks of independent authorized dealers and agents – providing products and support to customers in the U.S., Canada, and Puerto Rico – as well as direct-to-consumer sales of DIY and professionally installed products.

Forward Looking Statements

This press release includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements about business strategies, market potential and expansion, the success of new products and services, the launch of Brinks Home Security's consumer financing solution; the anticipated benefits of the Brinks Home Security’s rebranding; customer retention; account creation and related cost; anticipated account generation; future financial performance; debt refinancing; recovery of insurance proceeds and other matters that are not historical facts. These forward-looking statements involve many risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements, including, without limitation, possible changes in market acceptance of our services, technological innovations in the alarm monitoring industry, competitive issues, continued access to capital on terms acceptable to us, our ability to capitalize on acquisition opportunities, general market and economic conditions, including global economic concerns due to the COVID-19 outbreak, and changes in law and government regulations. These forward-looking statements speak only as of the date of this press release, and we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement contained herein to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. Please refer to the publicly filed documents of Monitronics International, Inc., including the most recent Forms 10-K and 10-Q for additional information about us and about the risks and uncertainties related to our business which may affect the statements made in this press release.

Contact:

Erica Bartsch
Sloane & Company
212-446-1875
ebartsch@sloanepr.com

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES

Condensed Consolidated Balance Sheets
Amounts in thousands, except share amounts

 

Successor Company

 

June 30,
2020

 

December 31,
2019

Assets

 

 

 

Current assets:

 

 

 

Cash and cash equivalents

$

45,452 

 

 

$

14,763 

 

Restricted cash

180 

 

 

238 

 

Trade receivables, net of allowance for doubtful accounts of $2,746 in 2020 and $3,828 in 2019

10,410 

 

 

12,083 

 

Prepaid and other current assets

25,981 

 

 

25,195 

 

Total current assets

82,023 

 

 

52,279 

 

Property and equipment, net of accumulated depreciation of $10,337 in 2020 and $3,777 in 2019

42,319 

 

 

42,096 

 

Subscriber accounts and deferred contract acquisition costs, net of accumulated amortization of $157,526 in 2020 and $61,771 in 2019

1,116,657 

 

 

1,064,311 

 

Dealer network and other intangible assets, net of accumulated amortization of $19,806 in 2020 and $7,922 in 2019

125,322 

 

 

136,778 

 

Goodwill

— 

 

 

81,943 

 

Deferred income tax asset, net

684 

 

 

684 

 

Operating lease right-of-use asset

18,411 

 

 

19,277 

 

Other assets

18,753 

 

 

21,944 

 

Total assets

$

1,404,169 

 

 

$

1,419,312 

 

Liabilities and Stockholders' Equity

 

 

 

Current liabilities:

 

 

 

Accounts payable

$

14,809 

 

 

$

16,869 

 

Other accrued liabilities.

41,632 

 

 

24,954 

 

Deferred revenue

11,138 

 

 

12,008 

 

Holdback liability

9,837 

 

 

8,191 

 

Current portion of long-term debt.

8,225 

 

 

8,225 

 

Total current liabilities

85,641 

 

 

70,247 

 

Non-current liabilities:

 

 

 

Long-term debt

1,021,606 

 

 

978,219 

 

Long-term holdback liability

1,475 

 

 

2,183 

 

Operating lease liabilities

16,021 

 

 

16,195 

 

Other liabilities

72,426 

 

 

6,390 

 

Total liabilities

1,197,169 

 

 

1,073,234 

 

Commitments and contingencies

 

 

 

Stockholders' equity:

 

 

 

Preferred stock, $0.01 par value.  Authorized 5,000,000 shares; no shares issued

— 

 

 

— 

 

Common stock, $0.01 par value.  Authorized 45,000,000 shares; issued and outstanding 22,500,000 shares at both June 30, 2020 and December 31, 2019

225 

 

 

225 

 

Additional paid-in capital

379,175 

 

 

379,175 

 

Accumulated deficit

(170,615

)

 

(33,331

)

Accumulated other comprehensive (loss) income, net

(1,785

)

 

 

Total stockholders' equity

207,000 

 

 

346,078 

 

Total liabilities and stockholders' equity

$

1,404,169 

 

 

$

1,419,312 

 

 

 

 

 

 

 

 

 

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
Amounts in thousands, except shares and per share amounts

 

Successor Company

 

 

Predecessor Company

 

Three Months Ended June 30,

 

 

Three Months Ended June 30,

 

2020

 

 

2019

Net revenue

$

120,808 

 

 

 

$

128,091 

 

Operating expenses:

 

 

 

 

Cost of services

27,624 

 

 

 

28,536 

 

Selling, general and administrative, including stock-based and long-term incentive compensation

32,541 

 

 

 

28,163 

 

Radio conversion costs

3,667 

 

 

 

— 

 

Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets

54,368 

 

 

 

49,138 

 

Depreciation

3,451 

 

 

 

3,121 

 

 

121,651 

 

 

 

108,958 

 

Operating (loss) income

(843

)

 

 

19,133 

 

Other expense (income):

 

 

 

 

Restructuring and reorganization expense

— 

 

 

 

33,102 

 

Interest expense

20,207 

 

 

 

40,536 

 

Realized and unrealized gain, net on derivative financial instruments

— 

 

 

 

(969

)

 

20,207 

 

 

 

72,669 

 

Loss before income taxes

(21,050

)

 

 

(53,536

)

Income tax expense

602 

 

 

 

666 

 

Net loss

(21,652

)

 

 

(54,202

)

Other comprehensive income (loss):

 

 

 

 

Unrealized gain (loss) on derivative contracts, net

19 

 

 

 

(472

)

Total other comprehensive income (loss), net of tax

19 

 

 

 

(472

)

Comprehensive loss

$

(21,633

)

 

 

$

(54,674

)

 

 

 

 

 

Basic and diluted income per share:

 

 

 

 

Net loss

$

(0.96

)

 

 

$

— 

 

 

 

 

 

 

Weighted average Common shares - basic and diluted

22,500,000 

 

 

 

— 

 

Total issued and outstanding Common shares at period end

22,500,000 

 

 

 

— 

 

 

 

 

 

 

 

 

MONITRONICS INTERNATIONAL, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
Amounts in thousands, except shares and per share amounts

 

Successor Company

 

 

Predecessor Company

 

Six Months Ended June 30,

 

 

Six Months Ended June 30,

 

2020

 

 

2019

Net revenue

$

243,383 

 

 

 

$

257,697 

 

Operating expenses:

 

 

 

 

Cost of services

55,634 

 

 

 

55,300 

 

Selling, general and administrative, including stock-based and long-term incentive compensation

76,994 

 

 

 

59,385 

 

Radio conversion costs

8,491 

 

 

 

— 

 

Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets

107,649 

 

 

 

98,283 

 

Depreciation

6,560 

 

 

 

6,275 

 

Goodwill impairment

81,943 

 

 

 

— 

 

 

337,271 

 

 

 

219,243 

 

Operating (loss) income

(93,888

)

 

 

38,454 

 

Other expense:

 

 

 

 

Restructuring and reorganization expense

— 

 

 

 

33,102 

 

Interest expense

40,549 

 

 

 

77,969 

 

Realized and unrealized loss, net on derivative financial instruments

— 

 

 

 

6,804 

 

Refinancing expense

— 

 

 

 

5,214 

 

 

40,549 

 

 

 

123,089 

 

Loss before income taxes

(134,437

)

 

 

(84,635

)

Income tax expense

1,220 

 

 

 

1,337 

 

Net loss

(135,657

)

 

 

(85,972

)

Other comprehensive loss:

 

 

 

 

Unrealized loss on derivative contracts, net

(1,794

)

 

 

(940

)

Total other comprehensive loss, net of tax

(1,794

)

 

 

(940

)

Comprehensive loss

$

(137,451

)

 

 

$

(86,912

)

 

 

 

 

 

Basic and diluted income per share:

 

 

 

 

Net loss

$

(6.03

)

 

 

$

— 

 

 

 

 

 

 

Weighted average Common shares - basic and diluted

22,500,000 

 

 

 

— 

 

Total issued and outstanding Common shares at period end

22,500,000 

 

 

 

— 

 

 

 

 

 

 

 

 

Adjusted EBITDA

We evaluate the performance of our operations based on financial measures such as revenue and "Adjusted EBITDA." Adjusted EBITDA is a non-GAAP financial measure and is defined as net income (loss) before interest expense, interest income, income taxes, depreciation, amortization (including the amortization of subscriber accounts, dealer network and other intangible assets), restructuring charges, stock-based compensation, and other non-cash or non-recurring charges. We believe that Adjusted EBITDA is an important indicator of the operational strength and performance of our business. In addition, this measure is used by management to evaluate operating results and perform analytical comparisons and identify strategies to improve performance. Adjusted EBITDA is also a measure that is customarily used by financial analysts to evaluate the financial performance of companies in the security alarm monitoring industry and is one of the financial measures, subject to certain adjustments, by which our covenants are calculated under the agreements governing our debt obligations. Adjusted EBITDA does not represent cash flow from operations as defined by generally accepted accounting principles in the United States ("GAAP"), should not be construed as an alternative to net income or loss and is indicative neither of our results of operations nor of cash flows available to fund all of our cash needs. It is, however, a measurement that we believe is useful to investors in analyzing our operating performance. Accordingly, Adjusted EBITDA should be considered in addition to, but not as a substitute for, net income, cash flow provided by operating activities and other measures of financial performance prepared in accordance with GAAP. As companies often define non-GAAP financial measures differently, Adjusted EBITDA as calculated by Monitronics should not be compared to any similarly titled measures reported by other companies.

The following table provides a reconciliation of Net loss to total Adjusted EBITDA for the periods indicated (amounts in thousands):

 

Successor Company

 

 

Predecessor Company

 

Three Months Ended June 30,

 

 

Three Months Ended June 30,

 

2020

 

 

2019

Net loss

$

(21,652

)

 

 

$

(54,202

)

Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets

54,368 

 

 

 

49,138 

 

Depreciation

3,451 

 

 

 

3,121 

 

Radio conversion costs

3,667 

 

 

 

— 

 

Stock-based compensation

— 

 

 

 

(413

)

Long-term incentive compensation

238 

 

 

 

264 

 

Legal settlement insurance recovery

(700

)

 

 

(4,800

)

Severance expense (a)

1,352 

 

 

 

— 

 

Integration / implementation of company initiatives

2,568 

 

 

 

1,833 

 

Restructuring and reorganization expense

— 

 

 

 

33,102 

 

Interest expense

20,207 

 

 

 

40,536 

 

Unrealized gain, net on derivative financial instruments

— 

 

 

 

(969

)

Income tax expense

602 

 

 

 

666 

 

Adjusted EBITDA

$

64,101 

 

 

 

$

68,276 

 

 

 

 

 

 

Expensed Subscriber acquisition costs, net

 

 

 

 

Gross subscriber acquisition costs (b)

$

3,723 

 

 

 

$

8,921 

 

Revenue associated with subscriber acquisition costs

(1,444

)

 

 

(2,393

)

Expensed Subscriber acquisition costs, net

$

2,279 

 

 

 

$

6,528 

 


(a) 

Severance expense related to transitioning executive leadership in 2020.

(b)

Gross subscriber acquisition costs for the three months ended June 30, 2019 has been restated from $10,877,000 to $8,921,000 due to allocation adjustments made to align with current period presentation of expensed subscriber acquisition costs.

The following table provides a reconciliation of Net loss to total Adjusted EBITDA for the periods indicated (amounts in thousands):

 

Successor Company

 

 

Predecessor Company

 

Six Months Ended June 30,

 

 

Six Months Ended June 30,

 

2020

 

 

2019

Net loss

$

(135,657

)

 

 

$

(85,972

)

Amortization of subscriber accounts, deferred contract acquisition costs and other intangible assets

107,649 

 

 

 

98,283 

 

Depreciation

6,560 

 

 

 

6,275 

 

Radio conversion costs

8,491 

 

 

 

— 

 

Stock-based compensation

— 

 

 

 

(224

)

Long-term incentive compensation

401 

 

 

 

550 

 

LiveWatch acquisition contingent bonus charges

— 

 

 

 

63 

 

Legal settlement insurance recovery

(700

)

 

 

(4,800

)

Severance expense (a)

4,242 

 

 

 

— 

 

Integration / implementation of company initiatives

8,144 

 

 

 

3,414 

 

Goodwill impairment

81,943 

 

 

 

— 

 

Restructuring and reorganization expense

— 

 

 

 

33,102 

 

Interest expense

40,549 

 

 

 

77,969 

 

Realized and unrealized loss, net on derivative financial instruments

— 

 

 

 

6,804 

 

Refinancing expense

— 

 

 

 

5,214 

 

Income tax expense

1,220 

 

 

 

1,337 

 

Adjusted EBITDA

$

122,842 

 

 

 

$

142,015 

 

 

 

 

 

 

Expensed Subscriber acquisition costs, net

 

 

 

 

Gross subscriber acquisition costs (b)

$

11,591 

 

 

 

$

14,777 

 

Revenue associated with subscriber acquisition costs

(3,304

)

 

 

(4,096

)

Expensed Subscriber acquisition costs, net

$

8,287 

 

 

 

$

10,681 

 


(a) 

Severance expense related to transitioning executive leadership in 2020.

(b)

Gross subscriber acquisition costs for the six months ended June 30, 2019 has been restated from $18,192,000 to $14,777,000 due to allocation adjustments made to align with current period presentation of expensed subscriber acquisition costs.